Natalie’s friend, Curtis Lesperance, decides to meet withNatalie after hearing that her discussions about a possiblebusiness partnership with her friend Katy Peterson have failed.(Natalie had decided that forming a partnership with Katy, a highschool friend, would hurt their friendship. Natalie had alsoconcluded that she and Katy were not compatible to operate abusiness venture together.) Because Natalie has been so successfulwith Continuing Cookie Chronicle and Curtis has been just assuccessful with his coffee shop, they both conclude that they couldbenefit from each other’s business expertise. Curtis and Natalienext evaluate the different types of business organization. Becauseof the advantage of limited personal liability, they decide to forma corporation. Curtis has operated his coffee shop for 2 years. Hebuys coffee, muffins, and cookies from a local supplier. Natalie’sbusiness consists of giving cookie-making classes and selling fineEuropean mixers. The plan is for Natalie to use the premises Curtiscurrently rents to give her cooking-making classes anddemonstrations of the mixers that she sells. Natalie will alsohire, train, and supervise staff to bake the cookies and muffinssold in the coffee shop. By offering her classes on the premises,Natalie will save on travel time going from one place to another.Another advantage is that the coffee shop will have one centrallocation for selling the mixers. The current market values of theassets of both businesses are as follows. Curtis’s CoffeeContinuing Cookie Chronicle Cash $7,130 $12,000 Accounts receivable100 800 Inventory 450 1,200 Equipment 2,500 1,000 * *CookieChronicle decided not to buy the delivery van considered in Chapter10. Combining forces will also allow Natalie and Curtis to pooltheir resources and buy a few more assets to run their new businessventure. Curtis and Natalie then meet with a lawyer and form acorporation on November 1, 2020, called Cookie & CoffeeCreations Inc. The articles of incorporation state that there willbe two classes of shares that the corporation is authorized toissue: common shares and preferred shares. They authorize 100,000no-par shares of common stock, and 10,000 no-par shares ofpreferred stock with a $0.50 noncumulative dividend. The assetsheld by each of their sole proprietorships will be transferred intothe corporation at current market value. Curtis will receive 10,180common shares, and Natalie will receive 15,000 common shares in thecorporation. Therefore, the shares have a fair value of $1 pershare. Natalie and Curtis are very excited about this new businessventure. They come to you with the following questions: Prepare thejournal entries required on November 1, 2020, the date when Natalieand Curtis transfer the assets of their respective businesses intoCookie & Coffee Creations Inc.
Assume that Cookie & Coffee Creations Inc. issues 1,000$0.50 noncumulative preferred shares to Curtis’s dad and the samenumber to Natalie’s grandmother, in both cases for $5,000. Alsoassume that Cookie & Coffee Creations Inc. issues 750 commonshares to its lawyer.
Prepare the journal entries for each of these transactions. Theyall occurred on November 1. Prepare the opening balance sheet forCookie & Coffee Creations Inc. as of November 1, 2020,including the journal entries in (b) and (c) above.
Accounts Receivable
Cash
Common Stock
Equipment
Income Summary
Inventory
Land
Organization Expense
Paid-in Capital from Treasury Stock
Paid-in Capital in Excess of Par-Common Stock
Paid-in Capital in Excess of Par-Preferred Stock
Paid-in Capital in Excess of Stated Value-Common Stock
Patents
Preferred Stock
Retained Earnings
Share Capital-Ordinary
Share Capital-Preference
Share Premium-Ordinary
Share Premium-Preference
Treasury Stock
